USD/CAD climbs on USMCA concerns and firmer US labour data

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USD/CAD edges higher on Wednesday after reports that the US is privately considering withdrawing from the US-Mexico-Canada Agreement (USMCA), weighing on the Canadian Dollar (CAD). At the time of writing, the pair trades around 1.3612, rebounding from intraday lows near 1.3500.

USD/CAD edges higher as fresh USMCA uncertainty weighs on the Canadian Dollar.
Upbeat US jobs data help the US Dollar stabilise after recent weakness.
Investors now look ahead to Friday’s US CPI data.

However, the reports have not yet been confirmed by US officials. Still, President Donald Trump’s unpredictable approach to trade and diplomacy is keeping uncertainty high around North American trade ties.

Meanwhile, a stronger-than-expected US jobs report helped stabilise the US Dollar (USD) after its recent bout of weakness, adding further pressure on the Loonie. Nonfarm Payrolls (NFP) rose by 130K in January, beating market expectations of around 70K and coming in above December’s revised 48K gain, while the Unemployment Rate edged down to 4.3% from 4.4%.

The Bureau of Labor Statistics (BLS) noted that average monthly job growth in 2025 was only 15K, underscoring how sharply hiring momentum slowed through last year and supporting the case for the Federal Reserve’s (Fed) three consecutive interest-rate cuts in 2025.

On the inflation side of the labour market, Average Hourly Earnings rose by 0.4% MoM in January, above the 0.3% forecast, while the annual pace held steady at 3.7% YoY, slightly above expectations of 3.6%.

Taken together, the data suggest the Federal Reserve (Fed) can afford to wait before cutting interest rates again, as markets continue to price around two rate cuts by the end of the year. Attention now turns to the Consumer Price Index (CPI) report due on Friday for clearer signals on the timing of the first cut.

Elsewhere, Oil prices trimmed part of their earlier gains after comments from Volodymyr Zelenskyy said Ukraine is ready to meet with the US on February 17-18, with territorial issues set to be a key focus of the talks. Softer crude prices tend to weigh on the Canadian Dollar, as Canada is a major Oil exporter.

Canadian Dollar FAQs

What key factors drive the Canadian Dollar?

The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.

How do the decisions of the Bank of Canada impact the Canadian Dollar?

The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.

How does the price of Oil impact the Canadian Dollar?

The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.

How does inflation data impact the value of the Canadian Dollar?

While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.

How does economic data influence the value of the Canadian Dollar?

Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.